Vanderbeek v. Vernon Corp., No. 00SC960.

• Decision Date: 17 June 2002
• Docket Number: No. 00SC960.
• Citation: 50 P.3d 866
• Parties: Robert R. VANDERBEEK; William C. Bacon; and Dorothy Severson, in their capacity as co-trustees on behalf of the James W. Vanderbeek Generation-Skipping Transfer Trust UTA6-21-82 Tax ID No. 7012717, Petitioners, v. VERNON CORPORATION, a British West Indies Corporation, Respondent.
• Court: Colorado Supreme Court

50 P.3d 866

Robert R. VANDERBEEK; William C. Bacon; and Dorothy Severson, in their capacity as co-trustees on behalf of the James W. Vanderbeek Generation-Skipping Transfer Trust UTA6-21-17, Petitioners, v. VERNON CORPORATION, a British West Indies Corporation, Respondent.

No. 00SC960.

Supreme Court of Colorado, En Banc.

June 17, 2002.

Rehearing Denied August 5, 2002.

Wehrle Law Firm, P.C., Richard T. Wehrle, Denver, Colorado, Attorney for Petitioners.

Martin & Mehaffy, LLC, Joel C. Maguire, Boulder, Colorado, Attorney for Respondent. Justice RICE delivered the Opinion of the Court.

We granted certiorari to consider the appropriate test for recovery of consequential damages in actions alleging tortious economic interference.¹ Relying on our decision in Colorado Kenworth Corp. v. Whitworth, 144 Colo. 541, 357 P.2d 626 (1960), the court of appeals concluded that consequential damages for wrongful attachment were recoverable only if at the time the tort was committed, both parties contemplated such damages as the probable result thereof, and these damages were not uncertain, unnatural, remote as to cause, speculative, or conjectural. Because the court of appeals concluded that the consequences of Petitioners' wrongful attachment were within the "reasonable contemplation" of the parties at the time the tort was committed, it awarded Respondent the "use value" of the unlawfully detained funds. It denied Respondent the "lost profits value" of these funds though, because this value was not reasonably ascertainable.

We affirm the court of appeals' judgment. In doing so, however, we clarify that the proper test for assessing consequential damages arising from economic torts is whether such damages are the natural and probable result of the injury sustained by virtue of the tortious act. As in other torts, these damages must be proximately caused by the tortious act and be reasonably ascertainable. Here, we hold that (1) an increase in the price Respondent paid to acquire 95,000 shares of Osicom Technologies, Inc. ("Osicom"), and (2) Respondent's inability to purchase an additional 105,000 shares of Osicom stock were the natural and probable result of Petitioners' wrongful attachment. In addition, we hold that the Petitioners' wrongful attachment of Respondent's funds was the proximate cause of such damage. Finally, we hold that the increased cost of acquiring 95,000 shares of Osicom stock is reasonably ascertainable and therefore recoverable. However, the lost profits on 105,000 shares of Osicom stock not purchased because of the wrongful attachment is not reasonably ascertainable and thus not recoverable. We therefore affirm the court of appeals' judgment.

I. FACTS AND PROCEDURAL HISTORY

Petitioners, Robert R. Vanderbeek, William C. Bacon, and Dorothy Severson, in their capacity as co-trustees on behalf of the James W. Vanderbeek Generation-Skipping Transfer Trust, brought an action in Boulder County District Court against Respondent, Vernon Corporation, and others arising out of a partnership agreement among the parties. In conjunction therewith and pursuant to C.R.C.P. 102, Petitioners moved ex parte for issuance of a pre-judgment writ of attachment against approximately $1,000,000 they expected to be paid into the account of Respondent at Firststate Bank. In reliance on Petitioners' representations, the trial court granted the motion, and on December 23, 1997, a Writ of Attachment was served on Firststate Bank. Firststate then froze $1,023,370 in Respondent's account.

In response, Respondent traversed the writ of garnishment issued in aid of attachment. At the traverse hearing, the trial court concluded that a forum selection clause in a partnership agreement between the parties deprived it of subject-matter jurisdiction over the action. Accordingly, on January 13, 1998, it dismissed the action and dissolved the writ.

Subsequently, Respondent filed a motion seeking damages it claimed were caused by the wrongful attachment of its funds. According to the stipulation of facts submitted to the trial court by the parties, Respondent intended to use $450,000 of the funds frozen by the writ of garnishment to purchase 200,000 shares of Osicom. Petitioners had no actual knowledge of this intent. On December 24, 1997, the day after the writ was issued, shares of Osicom were trading at $2 3/16 per share. Thus, on this date, Respondent could have acquired 200,000 shares of Osicom for approximately $436,000 plus commission. Respondent was unable to purchase Osicom until the funds were released however. By this time, the stock had appreciated considerably such that Respondent was only able to obtain 95,000 shares for a cost of $449,828.15.

Respondent claimed damages in the amount of $331,015.65. This figure represented the additional $242,728.15 it had to pay for the 95,000 shares of Osicom it did purchase plus $88,287.50 in lost profits on the 105,000 shares of Osicom it was unable to purchase. The trial court refused to award either component. It reasoned that Osicom's dramatic rise in value between December 23, 1997 and January 13, 1998 was unforeseeable and thus damages attributable thereto were merely speculative or conjectural. Instead, it held that the appropriate measure of damages was the interest on the principal amount of the funds during the time they were frozen.

The court of appeals reversed in part. It acknowledged that "[o]rdinarily, the measure of damages for tortious detention of money is the legal rate of interest for the period of such detention." Vanderbeek, 25 P.3d at 1245 (citing Boyle v. Poor, 62 Colo. 337, 163 P. 967 (1916)). However, it correctly held that consequential damages might also be recovered. Id. (citing Colo. Kenworth Corp. v. Whitworth, 144 Colo. 541, 357 P.2d 626 (1960)). It therefore turned its attention to the test for determining when consequential damages are available.

The court of appeals recognized that "[d]amages resulting from wrongful attachment are governed by tort principles" and that "[g]enerally in an action for tort, an injured party is entitled to recover damages for the natural and probable consequences of the tort." Vanderbeek, 25 P.3d at 1244. However, the court of appeals read Colorado Kenworth Corp. as requiring it to apply the more limited standard for recovery of consequential damages derived from Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854). Id. at 1244-45. It therefore held that consequential damages for wrongful attachment are recoverable "`if under the circumstances, it can be fairly said that both parties have these consequences in contemplation at the time of the wrong complained of, as the probable result thereof, and if these unusual consequences are neither uncertain, unnatural, nor remote as to cause, nor speculative and conjectural in effect.'" Id. at 1245 (quoting Colo. Kenworth Corp. 144 Colo. at 549, 357 P.2d at 631-32). Applying this test, the court of appeals held that "it was within the reasonable contemplation of the parties that the money attached was to be used for investment purposes of some kind." Id. at 1246. It therefore awarded as consequential damages the additional cost Respondent paid for the 95,000 shares of Osicom. Id. It denied the profits lost on the 105,000 shares of Osicom Respondent never purchased, however, because these damages were not reasonably ascertainable. Id. at 1246-47.

We affirm the court of appeals' judgment, but for a different reason.

II. ANALYSIS

Because we disagree with the court of appeals that Colorado Kenworth Corp. resolves the issue before us, we begin with an analysis of that case.

A. Colorado Kenworth Corp.

The parties in Colorado Kenworth Corp. entered into a sales agreement for the purchase of a "truck-tractor." 144 Colo. at 542,357 P.2d at 628. The purchaser, Whitworth, made an initial payment and agreed to pay the balance in seventeen successive monthly payments. Id. He gave a note for this balance secured by a chattel mortgage on the truck-tractor. Id. Whitworth purchased the truck-tractor for the purpose of hauling freight, and Kenworth, the seller, knew this. Id. at 549, 357 P.2d at 631. Due to a dispute between the parties, Kenworth repossessed the truck. Id. at 544-45, 357 P.2d at 629. Whitworth claimed that this repossession was wrongful and brought suit. Id. at 545, 357 P.2d at 629. The parties stipulated at a pretrial conference that the action was founded on a theory of conversion. Id. As part of his damages, Whitworth claimed consequential damages resulting from his inability to perform a freight-hauling contract with a third party. Id.

On appeal this court articulated the relevant issue before it in this way: "Are consequential damages recoverable in a conversion action, or is the plaintiff restricted to a recovery of the value of the article taken with interest on such value." Id. at 549, 357 P.2d at 631. Thus, the issue on appeal as framed by the court was not the standard by which the recovery of consequential damages are to be determined but simply whether they are recoverable at all in a conversion action.

The court founded its analysis of this issue on an initial premise: that Kenworth knew Whitworth purchased the truck-tractor for the purpose of hauling freight. Id. It then cited both of the competing standards for recovery of consequential damages in a tort action involving purely economic interference. Id. First, the court acknowledged that conversion is a tort and thus "Kenworth should be answerable to such damages as will completely indemnify Whitworth for the natural and probable consequences of its conversion." Id. Under this standard, whether consequential damages are recoverable depends only on a determination that these damages were proximately caused by the wrongful act and that they are reasonably ascertainable. Then, the court cited the rule derived from Hadley v. Baxendale for recovery of special damages² in a contract action: "Damages...